Brazil’s finance chief blasted the latest round of U.S. monetary easing, saying that the Federal Reserve’s resumption of asset purchases could damage growth in emerging markets.
Finance Minister Guido Mantega, who coined the term “currency war” in 2010 to describe advanced economies’ use of monetary policy to boost exports, said the Fed’s open-ended plan to purchase assets will erode the competitiveness of Brazilian manufacturers by weakening the U.S. dollar. A decline in the dollar also cuts into the value of Brazil’s foreign currency reserves, he said.
“QE3 is a worry of ours,” Mantega told reporters in Paris following a meeting with his French counterpart, Pierre Moscovici. “It will resolve lots of problems in the U.S., but the depreciation of the dollar will cause lots of problems for emerging nations.”
Brazil has stepped up efforts to weaken the real since Sept. 13, the day Ben S. Bernanke unveiled the asset-buying plan. The central bank has sold reverse currency swaps four times in the past four days, driving down the real 0.4 percent to 2.0285 per U.S. dollar as of 10:12 a.m. local time.
The real reached a high this year of 1.70 against the U.S. dollar on Feb. 28. Since then, the real has slid 16 percent, more than all 16 major currencies tracked by Bloomberg, as the government came to the rescue of industry by raising tariffs, imposing barriers on capital inflows and purchasing dollars in the spot and futures market.
Brazil has been one of the leading critics of interest rate policy in the U.S. and Europe. President Dilma Rousseff in March said advanced economies were unleashing a “monetary tsunami” that adversely impacts on emerging markets’ currencies and trade balances.
Even after the real began depreciating in March, most of the measures to curb gains by the real have been kept in place and Mantega reiterated today that the government won’t let the real strengthen.
An overvalued real could again hit Brazilian manufacturers just as Brazil’s economy is showing signs of recovering after a yearlong stagnation. Brazil’s gross domestic product is expected to grow 1.57 percent this year, down from 2.7 percent in 2011, according to the latest survey of analysts by the central bank.
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